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Financial Reform Bill May Be Near Make-Or-Break Point In Senate

Senate banking committee members have made major progress in long-running negotiations over a financial reform bill, but time appears to be running out on forging a consensus package.

U.S. Senator Bob Corker (R-TN)
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U.S. Senator Bob Corker (R-TN)

“I do feel we're very close on the major points,” said Republican Sen. Bob Corker of Tennessee, who’s been working with Democratic Senator Mark R. Warner of Virginia on key parts of the legislation.

Corker’s comments came Thursday after committee chairman Chris Dodd (D-Conn.) signaled waning patience over the negotiating process, saying in a statement that “we are now getting to the point where we need to pull the trigger.”

Dodd and the committee’s ranking GOP member, Richard Shelby of Alabama, have been waging negotiations of their own for weeks. The two have met at least twice this week, including Thursday, according to sources.

An important step is for Shelby and Dodd to finish up—especially on consumer protection—and reach an agreement in principal,” Corker told CNBC.com in an interview Thursday. “I know where both of the parties are and I think they are inches apart. They’ve come a long way.”

Despite Dodd's warning Thursday, spokeswoman Kirstin Brost told CNBC.com that he "continues to hope for a consensus package."

Among the key sticking points is the issue of consumer protection. Dodd’s original draft bill in November contained the creation of a new, powerful agency to handle the role, similar to that in the House’s version, which was approved on the floor in late 2009.

Republicans are opposed to that approach, although they acknowledge the need for some new measures.

“Both sides of the aisle see the need to deal with consumer protection,” said Corker. “I think it needs to be dealt with inside a prudential regulator so you don’t have that conflict with two organizations.”

Under one scenario, an existing regulator would be given new powers, somewhat similar to those of the proposed Consumer Financial Protection Agency, as it is called.

Dodd is thought to be open to alternatives and is not wedded to the creation of an entity along the lines of the House version as long as the powers are sufficient.

Senate Banking, Housing and Urban Affairs Committee Chairman Christopher J. Dodd (D-CT) and ranking member Sen. Richard C. Shelby (R-AL)
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Senate Banking, Housing and Urban Affairs Committee Chairman Christopher J. Dodd (D-CT) and ranking member Sen. Richard C. Shelby (R-AL)

There’s also been discussion of a compromise wherein a new agency would be created within an existing one with some measure of independence, according to an industry source.

President Obama, however, strongly supports the new agency concept, and has stated its importance on several occasions.

Another area of disagreement between Democrats and Republicans in the past has been new regulation of over-the-counter derivatives trading, but it's unclear whether that is holding up talks on a compromise at this time.

There appears to be agreement on other key parts of the bill, which include federal resolution authority for too-big-to-fail financial institutions, as well as the creation of a systemic regulator.

Corker, among others, has underscored the importance of these two components, and has introduced stand-alone legislation covering resolution authority along with Warner.

Banking committee negotiations have been taking place on a regular basis since late last year when Dodd's draft bill met significant opposition from Republicans and even some Democrats.

Republican and Democratic members of the committee were paired together to handle certain parts of the bill to increase the chances of working out a bipartisan version. Corker and Warner, for instance, have handled the resolution authority and systemic regulator components.

"What's important is that we get the big things right," said Corker, who stressed, "There are still a lot of discussions taking place.”

Washington analysts say time is running out, with the White House no doubt anxious for progress on the bill. The president recently has stepped up his own efforts to push the regulatory reform agenda.

There are also logistical concerns. Any compromise draft bill will be part of a long process, starting with debate at the committee level. And even if the Senate approves a package of reforms, it is likely to require reconciliation with the House version, followed by more voting before the president has anything to sign into law.

Dodd is said to be prepared to move ahead on a non-partisan basis if necessary with what might be considered a more moderate version of his original bill--an approach that could garner enough support to move it out of the banking committee.

According to one industry source, such a draft could be unveiled as soon as Monday.